Thriving on change

Page Tools

With losses of US$16 billion in 1993, IBM was a lumbering
elephant on the brink of extinction. When Lou Gerstner took over
the helm, the company plodded through a series of transformations
that made the firm the nimble giant it is today.

Between what IBM used to be and what it is now is a process
called change management. The best-run companies have agile
management that can rapidly institute changes to cope with market
conditions. At these companies, change has become business as
usual.

Change became a part of China Minsheng Banking
Corporations (CMBC) DNA in late 2002, when senior management
decided to overhaul unproductive work cultures and inconsistent
reporting in favour of Western management practices.

Since listing on the Shanghai Stock Exchange in 2000, the
private bank has recorded a compound annual growth rate of over 60
per cent on total assets. Even during prosperous times, upper
management was mulling over a major transformation, believing that
change is the only thing that can sustain success in the long
run.

"Continuous growth requires new capabilities and different work
practices. We were limited by our traditional structure and
operating model in China," says Hong Qi, executive vice president
of CMBC.

Obstacles on the path to glory In late 2002, the bank called on
global management consultancy firm A.T. Kearney to conduct an
internal process study. It exposed several outdated practices that
could endanger plans to list on the Hong Kong Stock Exchange this
year and future growth when China opens up its banking sector in
2007 in accordance with its World Trade Organisation
obligations.

"The issues we had to address included ineffective governance,
rudimentary credit risk management, a lack of accurate customer
data and inadequate human resource and business performance
management systems," says Hong.

Across the country, branches operated as autonomous "mini
banks," each with its own customer data, way of doing business and
reporting structure.

Senior management had trouble enforcing corporate strategy at
the branch level. CMBCs Beijing headquarters lacked credit
control because of inconsistent credit risk policy execution and a
lack of industry specification.

Its customer databases were unreliable and could not be mined
for the firms expanding business in small and medium
enterprise (SME) and retail banking.

CMBC also could not control costs or the bottom line by
monitoring product and branch performance-although the top line was
soaring. "It was imperative to manage business units and branches
not just on scale, but also on other key performance indicators to
sustain growth," Hong says.

Leading business - IT principles
While some were sceptical about Chinas commitment to reforms,
CMBC was not ready to take any chances. Under a bank-wide
transformation of which Hong was sponsor and director, the firm
outlined a bedrock of business and IT principles that would take it
to the future. They are:

Adopt Value-based Management Short-term: Build a basic business
performance management system (that includes scorecards) to measure
and track organisation and individual performance against the
banks strategic indicators and goals. Gradually introduce the
concept of value creation at all levels of the bank as the basis of
business planning.

Integrate Customer Information Management systems>
Short-term: Clean up and consolidate customer databases into a
single data management centre. Provide a unified view of customer
information from every touch point to enable basic customer
intimacy for wholesale and retail businesses. Provide analytical
tools to plan business growth.

Long-term: Make people-oriented culture a core corporate value.
Measure and link performance of individual employees to
compensation and promotion to ensure good employees are retained
and nurtured within the bank.

Creating business-IT alignment Having a set of nice-sounding
corporate goals is one thing. Getting there is another. In such a
large-scale program, "having well-defined bank-wide technical
architecture, principles and policies is critical to ensuring that
project priorities and inter-dependencies are addressed
consistently," says Hong.

Recognising that technology is key to the banks
transformation, CMBC replaced a hodgepodge of IT systems with an
integrated platform standardised on solutions supplied by SAP,
Peoplesoft (recently acquired by Oracle), BearingPoint and NCR.

To avoid building a white elephant, the bank set up a program
management office (PMO), comprising IT and business heads, to track
the alignment of IT and business plans. The PMO also had to ensure
that decisions, including technology implementations and training,
were quickly communicated to all staff and executed without
disrupting the business.

"Without a good understanding of the way the business works, an
IT leader would not be able to address immediate business needs and
at the same time future-proof the IT environment," Hong says.

Communicate to garner trust
In his management book Good to Great, author Jim Collins noted that
technology can accelerate but not cause a transformation. The
missing ingredients are people and processes.

Employees and work processes can contribute to or sabotage any
business plan. To make staff commit to and own their portion of the
change, CMBC started to develop a culture of dialogue between
management and workers as soon as the reform kicked in.

Through regular newsletters, bank-wide meetings and user
training sessions, management allayed fears of retrenchments
brought about by sweeping changes. "The message had always been
business as usual. The process was very transparent and senior
management built up trust with employees," says Hong.

Upper management also communicated the corporate and individual
benefits of the program to employees at every level, and involved
them in everything from program design and planning to
implementation to garner buy-in. For instance, key middle managers
and employees from the various headquarters and branches were asked
to lead and execute initiatives.

"We actively involved the business people from the beginning of
the program to get their understanding, commitment and support,"
Hong says.

But turf protection was rife. "Like most banks in China,
Minsheng was facing a key challenge: How to make business changes,
especially change of reporting lines at the branch level? Branches
had strong autonomy in making business decisions on key issues such
as credit and HR and their managers had control of business and
people locally."

Dangling the compensation carrot Taking the bull by the horns,
CMBC rolled out a new performance measurement and compensation
scheme, tying employee appraisals to their ability to adapt to
change.

Take the banks credit risk management project. When CMBC
decided to create an independent, central credit organisation for
assessment objectivity, it also adjusted the key performance
indicators of credit officers and branch managers to support the
change.

Similarly, when rolling out a new customer information
management system, being technology-savvy was one of the
prerequisites for promotion and continued employment.

"We wanted to divert peoples attention from fighting for
power to delivering on new roles and responsibilities," says Hong.
"During the course of the change program, the interests of some
departments were inevitably damaged. That was a compromise we had
to make to ensure everyone was working in the same direction."

The role of external consultants
Most management experts are not in favour of importing best
practices into change projects as the conditions that foster
success could differ from one place to another.

In a recent Harvard Business Review article, Richard Tanner
Pascale and Jerry Sternin wrote that best practices are hard to
copy.

"Best practices rely on an external authority, not on the
community itself to identify and introduce a superior template,"
wrote Tanner, an associate fellow of Oxford University in England,
and Sternin, a former assistant dean at Harvard Business School in
Boston.

"When identification of a superior method is imposed, not self
discovered, cries of Were not them or It
just wont work here predictably limit acceptance."

However, in the case of CMBC, the involvement of foreign
authority A.T. Kearney was crucial "in helping to change the
mindset," says Hong.

Boonrueng Tanasuntonpaisan, IT director at Thailands
energy giant PTT Exploration and Production, agrees. "Our change
program was led by an external consultant to ensure that proper
methodology would be used."

Chinas exuberant faith in Western-style management is well
recognised. But Thailand? At least for PTT, "change has become a
way of life," Tanasuntonpaisan claims.

Within the IT department, personnel responsibilities shift
depending on business demands. Such "flexibility", he says, ensures
that the IT organisation is always ready to accept the next
change.

PTT recently ditched its proprietary in-house finance,
procurement and work management systems for open standard-based
tools from Oracle, Revere and Business Objects. The technology
purchase was part of a change program aimed at helping upper
management gain a deeper view of business performance by product
line and individual transaction.

"Its human nature to resist change. Besides ensuring that
nobody would lose their jobs, promotion opportunities were
presented by business managers to all staff to improve the overall
acceptance of change," Tanasuntonpaisan says.

Flexible or indecisive?
Too much of a good thing can be bad. Constant change can be
disruptive and wear people down, eroding productivity and morale.
Worse still, management could be seen as indecisive.

To keep only the good things coming, CMBC designed projects for
quick wins, focusing on low-hanging business benefits that can
speak for themselves and "build up peoples confidence in the
overall program," says Hong.

The bank also chose a phased approach over a big bang.
"Dont shoot for overall victory. All fundamental changes
require time to create real impact. I designed the whole
transformation program into a few phases with clearly defined and
achievable milestones to retain peoples interest and
enthusiasm."

The banks effort began to bear fruit as early as 2004. In
its credit risk management practice, the ratio of non-performing
loans dropped to 1.2 per cent last year from 2.7 per cent in
2002.

Sales productivity, defined as the number of new customers
acquired per officer, also improved by 35 per cent in 2004 from the
previous year. The budgeting and planning process, which used to
take five weeks to complete, now takes only two weeks.

Only time can tell if positive results can be sustained. But
choosing change as a way of life has certainly started CMBC on a
rewarding journey.